Hong Kong’s Crypto Hub Aspirations Face Licensing Challenges

Hong Kong’s ambition to establish itself as a leading cryptocurrency hub faces significant obstacles. According to a Bloomberg report, numerous cryptocurrency exchanges are encountering difficulties in securing full licenses due to heightened regulatory concerns.

The city’s Securities and Futures Commission (SFC) has reportedly raised concerns after conducting on-site inspections of 11 “deemed-to-be-licensed” exchanges. The inspections revealed unsatisfactory practices that question the ability of these platforms to meet the stringent requirements needed for full licensing. Among the issues identified were over-reliance on a few key executives to manage client asset custody and inadequate measures to protect against cybercrime risks. Prominent exchanges like Crypto.com, Bullish, as well as local platforms such as HKbitEX and PantherTrade, are reportedly under scrutiny.

Currently, only two platforms, OSL and HashKey, have secured full licenses in Hong Kong. While the SFC aims to grant more licenses by the end of 2024, the challenging process has already led to the withdrawal of 12 applications, including those from Bybit, Huobi HK, and OKX.

Heightened Scrutiny Following Scandal

The SFC’s intensified regulatory efforts come in the wake of a scandal involving JPEX, an unlicensed crypto platform accused of defrauding over 2,600 victims of more than $200 million. The SFC had previously reported that JPEX and associated crypto influencers made misleading claims on social media, falsely suggesting that the platform had applied for a virtual asset trading license in Hong Kong. However, the regulator later clarified that JPEX had not submitted any such application, despite its claims of being a “licensed and recognized platform for facilitating the trading of digital assets and virtual currency.”

As Hong Kong continues its push to become a crypto hub, the ongoing regulatory challenges highlight the complexities involved in balancing innovation with investor protection. The outcome of the SFC’s efforts will likely shape the future landscape of cryptocurrency trading in the city.